The Washington business and occupation (B&O) tax is a slippery little devil. RCW 82.04.500 makes clear that the tax is a tax on the business itself — not a tax on purchasers or customers. Accordingly, the statute provides that the tax “shall constitute part of the operating overhead of” the business. In other words, it’s not a sales tax, which is paid by the customers but which is collected by the business.
In a previous opinion, Nelson v. Appleway Chevrolet, Inc., 160 Wn.2d 173 (2007), the Supreme Court held that a business was “not permitted to pass the tax through as an added charge to the final purchase price.” Apparently, however, there has been some question about the scope of Nelson‘s holding. How much does disclosure matter? What about negotiation with the customer? Well, the Ninth Circuit Court of Appeals had some questions as well, so they certified a question to the Washington Supreme Court in Peck v. AT&T Mobility (Wash., April 26, 2012):
Under RCW 82.04.500, may a seller recoup its business and occupation taxes where, prior to the sale of a monthly service contract, the seller discloses that in addition to the monthly service fee, it collects a surcharge to cover gross receipts taxes?
The Supreme Court held that, regardless of disclosure, RCW 82.04.500 “prevents a business from recouping the B&O tax as an added charge to its sales price.” Continue reading